IRS Penalty Relief: Automatic Exemption, First Time Abate, More

IRS penalties can add hundreds or thousands of dollars to a tax bill. The good news is that many of them can be reduced or removed. In 2026 the IRS also started a new program that skips some penalties automatically for people with a good track record. This guide explains each type of relief, who qualifies, and how to ask.

Which penalties can be relieved

The IRS lists these penalties as eligible for relief:

• Failure to file: 5% of the unpaid tax for each month or part of a month a return is late, up to 25%.
• Failure to pay: 0.5% of the unpaid tax each month, up to 25%. It drops to 0.25% a month during an approved payment plan if you filed on time, and rises to 1% a month if you still have not paid 10 days after a notice of intent to levy.
• Failure to deposit: for businesses that do not deposit payroll and other taxes correctly or on time.
• Accuracy-related penalties: when a return understates tax.
• Dishonored check: when a payment bounces.
• Underpayment of estimated tax: this one has its own, narrower relief rules. Reasonable cause generally does not apply to it.

If the notice itself is wrong, fix that first. If the IRS corrects the underlying problem, the penalty may go away on its own.

The new Automatic Exemption from Penalty (AEP)

On July 8, 2026, the IRS announced the Automatic Exemption from Penalty (AEP) in news release IR-2026-83. It is a system-run program that replaces First Time Abate going forward.

What it covers. If you qualify, the IRS does not assess these penalties when it processes your original return:

• Failure to file (and the similar penalties for partnership and S corporation returns)
• Failure to pay
• Failure to deposit

Which returns. Eligible original returns for tax year 2025 and later, and quarterly returns for 2026 and later (such as payroll returns).

Who qualifies. You must have a history of timely compliance. That means you filed the same type of return on time for the prior three years (or 12 consecutive quarters), and either no penalty was assessed (other than the estimated tax penalty) or any penalty was later removed for reasonable cause or IRS error. Businesses have extra conditions related to deposit penalties.

What you do. Nothing. The IRS applies AEP when your original return finishes processing and sends a letter saying penalties were not assessed because of your compliance history. You do not need to respond.

What it does not cover. You still owe the tax, the interest, and any other penalty that AEP does not cover. Returns filed only for specific events, such as estate (Form 706) and gift (Form 709) returns, and information returns generally do not qualify.

One more difference matters for people who cannot pay. Under First Time Abate, the failure-to-pay penalty can keep growing until the tax is paid, and you ask to remove it afterward. Under AEP, the IRS says the failure-to-pay penalty does not accrue and is not assessed on the unpaid tax.

First Time Abate (FTA)

For tax year 2024 and earlier returns, and for eligible returns missed during the transition, First Time Abate is still how you get administrative relief. According to the IRS and the Taxpayer Advocate Service, you generally qualify if:

• You had no penalties in the three tax years before the year with the penalty (or you did not need to file), other than an estimated tax penalty;
• You have filed all currently required returns, or filed a valid extension; and
• You have paid, or arranged to pay, the tax due. A payment plan counts as an arrangement.

You must ask for FTA. You do not have to use the words "First Time Abate" or send documents. The IRS checks your account. If you ask for reasonable cause and the IRS sees you qualify for FTA, it applies FTA.

Reasonable cause

If you do not qualify for AEP or FTA, you can ask for relief for reasonable cause. The IRS decides case by case. You must show you used ordinary care and prudence but still could not file or pay on time because of facts beyond your control.

Examples the IRS gives include:

• Fires, natural disasters or civil disturbances
• Inability to get records
• Death, serious illness or unavoidable absence of you or an immediate family member
• System problems that delayed a timely electronic filing or payment

The IRS says these usually are not enough on their own: relying on a tax preparer, not knowing the rules, simple mistakes, or lack of money. Lack of funds can count only when other facts show you used reasonable care.

Support your request with documents, such as hospital or court records or a doctor's letter showing start and end dates of an illness. Explain how the situation stopped you from filing or paying, and what you did once it ended.

Statutory exception

Sometimes the tax law itself provides an exception. The IRS lists these common ones:

• Incorrect written advice from the IRS. You asked the IRS a question in writing, got a wrong written answer, and relied on it. Send a copy of the advice, an explanation of how you relied on it, and a copy of the penalty notice.
• Mailed on time. A paper return or payment counts as on time if it was correctly addressed, had proper postage, and was mailed in the United States by the deadline through the Postal Service or a designated private delivery service. An e-filed return that was rejected but resent within 10 days of the rejection notice can also count as on time.
• Federal disaster areas and combat zones. People affected by a federal disaster or serving in a combat zone may qualify for relief.

How to ask for penalty relief

1. Read your notice. Follow its instructions first. If the notice is wrong, respond as it directs.
2. Call the number on the notice. Many requests, including FTA and some reasonable cause requests, can be approved over the phone. Have the notice and your reasons ready.
3. Write if needed. If the IRS cannot approve it by phone, file Form 843, Claim for Refund and Request for Abatement, or send a signed letter. Include your name, taxpayer ID, the tax year, the penalty, why it should be removed, and copies of supporting documents.
4. Keep copies of everything you send and note the date of every call.

An optional penalty abatement request kit is available on this site, but a clear letter with your own facts and documents is all the IRS requires.

Interest and penalty relief

The IRS charges interest on penalties. When a penalty is reduced or removed, the IRS automatically reduces the related interest. But the IRS does not remove interest on the tax itself for reasonable cause or first-time relief. It can reduce interest only in limited cases, such as an unreasonable IRS error or delay. See how IRS interest works.

If your request is denied

You can usually appeal to the IRS Independent Office of Appeals. TAS says you generally have 30 days from the date of the denial letter, so check the letter for your exact deadline. IRS Publication 4576 explains the penalty appeal process. If you are stuck, the Taxpayer Advocate Service may be able to help.

IRSV.com is an independent guide and is not affiliated with the IRS. This page is general information, not tax or legal advice. Rules change; confirm details on IRS.gov or with a tax professional. Found an error? Tell us.